Alternative investments for profit and pleasure

29th June 2012

According to the Daily Telegraph, an entrepreneur has launched a Twitter-driven, virtual stock exchange so investors can back celebrities instead of companies. TwiDAQ uses metrics from Twitter to influence the value of more than 250,000 stocks, which may include brands and celebrities, for a fantasy trading experience.

But aside from the likes of such innovative web start-ups, what other options are available to investors who are serious about making money during tough times?

Profit and pleasure

Considering the paltry returns on cash alongside a decade of poor equity returns, it's not surprising that there has been renewed interest in alternative investments.

The demand for physical assets with intrinsic value, rather than a virtual twittersphere, is helping push up the price of art, antiques, wine and classic cars – and, of course, gold.

On average, according to the Barclays Wealth Insights report, ‘Exploring the Motivations Behind Treasure Trends', treasure assets comprise 9.6% of the total net worth of wealthy individuals.

Women tend to own a tad more treasure than men, accounting for around 11% of their net worth compared with 9% for men. And those who inherit treasure assets are more likely to sell them than those who acquire such assets.

However, the share of wealth held in treasure assets varies widely among countries, is often embedded in local culture. People from economies with less developed financial markets, for example, tend to hold higher proportion of ‘treasure' in their portfolio.

This treasure ranges from paintings, wine, coin collections and sculpture, with jewellery and fine art remaining the most popular.

The familiarity bias

Dr Greg B Davies, Head of Behavioural Finance at the Wealth and Investment Management Division of Barclays, says that this growing focus on treasure is just one example of a ‘familiarity bias' that has become more pronounced since the financial crisis – meaning we search for assets we understand.

And performance has proved a boost to popularity too. For example, the art market continued to perform well last year, according to the Mei Moses All Art index, which measures the ups and downs of prices in the London and New York fine art markets.

After a poor year for shares, the Mei Moses measure indicates the value of art, mostly paintings, sold in major auction houses in the UK and US, grew 11% in 2011.

And there are other financial benefits. On top of your annual capital gains tax (CGT) allowance of £10,600 – after which you are subjected to up to 28% CGT – there is an added exemption for jewellery, art and antiques worth less than £6,000.

Wine investment is not liable to CGT because of a tax regulation called the "wasting asset rule". This decrees that if an asset has a life of 50 years or less, no CGT is payable on it.

According to Barclays, there are certain categories of treasure that increase in popularity with age. Fine art and antiques tend to be more popular among those aged 55 and over, while those under 45 prefer cars, wine, precious metals and jewellery.

Investors seeking diversification into treasure assets can invest through specialist funds. The argument is that these assets provide diversification and protect against inflation and currency devaluation, with precious metals most likely to be held purely as an investment, according to the Barclays report.

However, bear in mind that you can't buy a small share of a masterpiece in the way you that can buy a small stake in a company. Works of art are expensive to store and insure against theft, and their price tends to be volatile because valuation is subjective.

Motivations behind treasure trends

Finally, motivations for owning treasure assets vary depending on the socio-cultural background , but ‘enjoyment' is the primary reason around the world, according to the Barclays report. However, there are a variety of other reasons which may be culturally or family-based, such as the desire to earn respect in India, or pass on an heirloom in Europe.

For most people, it is the emotional aspect of owning ‘treasure' that provides the most satisfying returns – but the potential for profit shouldn't be underestimated for the shrewd investor.

 

More on Mindful Money:

Seeking income? Try an alternative

Happiness and Sustainability – Alternative yardsticks for economic growth

Is art the alternative investment of 2012?

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